So people who spend most of their money on groceries and gasoline and electricity — usually the poorest among us — effectively pay a lower sales tax, because those items aren’t taxed. So do wealthier people who spend most of their money on services — from lawn care to attorney fees — which also are untaxed. People who spend more of their money on clothing or electronics or restaurant meals or most consumer goods pay a higher effective tax rate because those items are taxed.

Now, there are perfectly legitimate reasons to write exemptions into the tax code. It can make the code more equitable: A sales tax is regressive, because poor people must spend a larger portion of their income than wealthier people, who are able to save or invest more; exempting groceries is one way to make the tax less regressive. Exemptions also can discourage those activities that we as a society want to discourage and encourage activities that we want to encourage; hence, a higher tax on cigarettes, and tax breaks for creating jobs in low-income counties.

The problem comes when the loopholes swallow the whole — as they clearly have when twice as many sales are exempted as taxed. The problem comes when the tax exemptions do not reflect generally agreed-upon values, but instead reflect the lobbying power of the favored interests. Or inertia.

Read it all.

Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • Personal Finance • Taxes • Politics in General • State Government • * South Carolina

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© 2013 Kendall S. Harmon. All rights reserved.

For original material from Titusonenine (such as articles and commentary by Dr. Harmon) permission to copy and distribute free of charge is granted, provided this notice, the logo, and the web site address are visible on all copies. For permission for use in for-profit publications, please email KSHarmon[at]mindspring[dot]com

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